4 Overview of Sub-Saharan Africa (SSA) Geographically, Sub-Saharan Africa* encompasses all countries south of the Sahara desert (excluding Sudan). Politically, it is comprised of 48 recognized states including the islands of the continent's eastern and western coasts. The population of the region was around 780 million in 2011 with working age population (age group: 15-64) constituting 55% of the total population. The region has the highest child mortality rate in the world. Figures for life expectancy, malnourishment, infant mortality and HIV/AIDS infections are also very high. According to the World Bank s latest global poverty update, almost half of the Sub- Saharan Africa* population (49.7%) lived below USD 1.25 a day in *excludes South Africa

8 Economic Outlook In the short term, Oil-exporting economies are expected to drive the region's growth, while a slow-down is expected in the middle-income economies due to closer linkages with global trade and financial markets. The fragile economies are set to register a positive real GDP growth after contracting in In the long-term, Sub-Saharan Africa* is expected to maintain a solid average growth just below the emerging market average. Natural resource development projects and oil production will drive the growth. Between 2012 and 2017, Sub-Saharan Africa* is expected to have average real GDP growth of 5.5% per year. By analytical regions, Oil-exporting economies are expected to grow by 5.6%, middleincome economies by 5%, low-income by 5.9% and fragile by 4.5% per year between 2012 and In 2012, inflation is expected to remain elevated in some countries, however, it is expected to remain under control in the long run. Uncertainty in the euro area and China are the major downside risks to the region's growth outlook. 8 *excludes South Africa

9 Insurance market development 9

10 SSA insurance market at a glance The SSA insurance markets are in a typical early phase of development, where the main focus lies on commercial lines of business in non-life and group business in life. Direct premiums written in 2011: USD 8.8bn non-life USD 5.92 bn 67% life USD 2.88 bn 33% Selected information on underwriting profitability in non-life suggests that it began deteriorating in 2006/07 as increasing competition put pressure on rates. Investment results came under pressure during the financial crisis in 2008 for two reasons. Local stock markets collapsed as capital was withdrawn. Yields on investments in USD denominated assets came under pressure because of historically low interest rates. 10 Source: Swiss Re Economic Research & Consulting, GfK GeoMarketing

12 Insurance penetration in 2011 is very low when comparing 1-to-1 with other regions 10 8 Premiums as a % of GDP non-life life Source: Swiss Re Economic Research & Consulting

13 but when put into relation to average income, non-life penetration is not much lower than would be expected non-life premiums as a % of GDP SSA average EM average Remark: bubble reflects non-life market size Real GDP per capita (2011) 13 Source: Swiss Re Economic Research & Consulting

14 More countries show life insurance penetration well below expectation in life. life premiums as a % of GDP (2011) Remark: bubble reflects non-life market size Real GDP per capita (2011) 14 Source: Swiss Re Economic Research & Consulting

17 Economic growth and stability Real GDP growth 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Sub-Saharan Africa Emerging markets Oil Exporters Middle-Income Low-Income Fragile SSA is expected to maintain solid average growth near the emerging market average. Natural resource development projects and oil production will be a key drivers of growth. The share of SSA GDP in the world total is expected to rise to around 1.5% from 1.1% today. Macroeconomic stability has improved in many countries resulting in lower exchange rate volatility. Inflation is also being tackled, despite the recent bouts of food energy price inflation in 2008 and The SSA re/insurance industry will benefit from solid economic environment, particularly in the business lines related to the booming natural resource sector. 17

18 Wealth and income distribution Average income and wealth will rise in line with the growing economy over the next 10 years. GDP per capita is likely to almost double to around USD (assuming constant real exchange rates). Poverty was significantly reduced in SSA between 1980 and The middle-income class, which is usually the main client group for traditional insurance products, has grown. However, only the share of the lowest income bracket of this middle class has expanded. This so-called "floating class" at the lowest rung of the middle class is prone to falling back into poverty. While it is disappointing that the share of the upper middle income households is not growing, even a constant share offers great potential. The strong population growth in SSA translates into over two million additional members of the middle class annually. If the middle class continues to benefit from economic growth, it will offer ample growth opportunities for traditional insurance products. However, insurance growth will be even more rapid if the upper levels of the middle-income class starts to broaden as well. Insurance penetration into the lower levels of the middle class and the poor will depend on the development of tailored products. 18

19 Microinsurance Microinsurance provides low-cost insurance solutions to low-income populations. With significant exposure to infectious diseases, under-developed infrastructure and largely agrarian populations, the low-income population of Africa is exposed to a number of risks. Health and agriculture risk are wide-spread and most troublesome for the poor population in Sub-Saharan Africa. Microinsurance of funeral expenditure also has a big potential in some of the African countries, eg Kenya. With around 346 million people in Sub-Saharan Africa* having earnings between USD 1.25 per day and USD 4 per day, the potential target market for various commercially viable microinsurance products is huge. However, with almost half of the population below extreme poverty (less than USD 1.25 per day), government involvement is also critical to secure the livelihood of people in Sub-Saharan Africa. Private-public partnerships are needed to create robust microinsurance markets. 19 *excludes South Africa

20 Political stability & governance, property rights and legal certainty In general, democracy and peaceful elections are becoming more widespread and governance has been improving. Nevertheless, many countries still struggle to institutionalise peaceful transfers of power. Some progress has been made on reducing the number of civil conflicts, but new conflicts continue to arise. The demographic developments will pose challenges for governments to provide education, jobs and health and other services. Population growth also means that food security is a key issue that must be addressed in the region. Continuing improvements institutional stability, good governance and legal certainty are key to provide a fertile ground for development of the insurance sector in SSA. Strong population growth will make food security a key issue which offers potential for insurance solutions. 20

21 Agriculture insurance Around 60% of Africa's population works primarily in the agriculture sector. Weather uncertainty, a prime risk in agriculture, coupled with lack of effective risk management strategies, make poor farmers more risk adverse. Appropriate risk management tools can bring about a change in people s behavior, leading to more productivity, less poverty and higher food security. Agriculture insurance is one of the most complex and challenging insurance segments. It includes crop, livestock, forestry, aquaculture and greenhouse insurance. Traditional crop insurance is considered too expensive, especially for small farmers. Affordable and simple agriculture insurance products are greatly needed. Index-based insurance is gaining increased popularity due to its affordability and simplicity. It also reduces the risk of moral hazard and adverse selection, however, the individual producer faces some basis risk. "Kilimo Salama" is an example of index-based agriculture microinsurance in Kenya. It was first piloted in 2009 and has been successful due to its affordability and simplicity. 21

22 Risk awareness, education Raising risk and insurance awareness is a time consuming process which will be supported by improving general education. Also, importantly, some insurance regulators, eg in Ghana, have launched targeted educational initiatives. Empirically, high risk awareness tends to be more important for developing an insurance market than its degree of exposure to natural catastrophes. Nurturing risk awareness at all levels of society is key to improving insurance protection for people living in natural catastrophe-prone regions, but also elsewhere. Education in this regard will need to be a key priority for the re/insurance industry and regulators alike. 22

23 Regulatory oversight & compulsory insurance Regulatory oversight has on average improved in SSA. In the West, the Inter-African conference on insurance markets (CIMA) is an important force for this trend. The number of compulsory lines has been gradually extended in a number of countries. However, as in many other emerging markets, enforcement often still falls short and should receive increased attention Strengthened regulation and improved supervision will lead to consolidation and a more well-capitalised industry, which will also increase consumer trust in insurance services. It will also increase the ability to insure more large risks locally, if underwriting capabilities are developed as well. A more solidly capitalised industry will benefit insurance growth and increase penetration. 23

24 Religion and culture Different cultural groups demand different kinds of insurance: In 2011, an estimated 270 million Muslims lived in SSA, which is roughly a third of the whole SSA population. The largest numbers of Muslims live in Nigeria (81m), Ethiopia (40m) and Tanzania (16m), large countries with minority Muslim populations. However, according to most Islamic jurists, conventional insurance is not aligned to shariah, the body of Islamic law, since it may involve fixed interest (riba), excessive risk taking (maisir), uncertainty and unclear terms (gharar), and investment in unacceptable (haram) industries such as breweries or gambling. Takaful, shariah-compliant insurance, offers a solution that appeals to Muslims. A limited number of shariah-compliant companies are currently active in SSA, eg in Senegal, Mauritania and Kenya. Sharia-compliant insurance products, most commonly known as takaful, is likely to play an important role in developing insurance awareness among the Muslim population in SSA, in particular in its "micro" form. 24

25 Re/insurance in SSA in

26 Insurance market outlook 30 USD bn Real growth rates 10% Given the current economic outlook for SSA, the insurance sector's solid growth in the range of 7% to 8% is likely to continue % 0% life non-life non-life, real growth (RHS) life, real growth (RHS) Commercial lines of business will continue to grow strongly, providing ample opportunities also on the reinsurance side in terms of large risks. Insurance premiums could reach more than USD 16 billion by 2017 and USD 25 bn by The reinsurance market will grow alongside the primary market, but slightly slower, since retentions will likely increase with higher capitalisation, consolidation and internationalisation of insurance groups. 26

29 Summary - economy Since 2000, SSA has enjoyed solid economic and insurance market growth, expanding foreign direct investments, and in many countries the political and social environment improved. Still, the SSA share in global gross domestic product (GDP) remains very low, at 1.1%, and its insurance sector accounts for only 0.2% of total global premiums written. Poverty has fallen, but remains widespread. The middle-income population, which is usually the main client group for traditional insurance products, has grown, but only the share of the lowest income bracket has expanded. As for the more stable upper levels of the middle-income population within the total population, the share has remained relatively constant but the absolute size of this part of the middle class has been growing solidly by about 2 million people per year due to rapid population growth. SSA is expected to maintain solid average growth of 5.5% through 2017, which is near the emerging market average. Natural resource development projects and oil production will be a key driver for growth. The share of SSA GDP in the world total is expected to rise to around 1.5% from 1.1% today. 29

30 Summary - insurance Insurance growth outstripped general economic growth between 2000 and 2011, and total premiums reached USD 8.8 billion in Still, the SSA share in global gross domestic product (GDP) remains very low (1.1%), and its insurance sector accounts for only 0.2% of total global premiums written. Insurance penetration in SSA is significantly below the average for emerging markets. However, given the low income level, penetration is slightly below the expected level, particularly for life products. Key factors driving demand for insurance include: Solid economic growth outlook and rising per capita income levels Improving political stability and governance More rigorous insurance regulation Provided these trends continue, the sector will show solid -- though not spectacular growth, particularly in commercial lines of business. Given the importance of the agricultural sector and the high share of low income households, micro insurance and agricultural insurance will be key growth areas over the next decade, supporting the development of the sector. 30

31 Thank you Insurance in sub-saharan Africa: gearing up for strong growth, an expertise publication by sigma, will be available in late Please see your Swiss Re account manager to obtain a copy.

32 Legal notice 2012 Swiss Re. All rights reserved. You are not permitted to create any modifications or derivatives of this presentation or to use it for commercial or other public purposes without the prior written permission of Swiss Re. Although all the information used was taken from reliable sources, Swiss Re does not accept any responsibility for the accuracy or comprehensiveness of the details given. All liability for the accuracy and completeness thereof or for any damage resulting from the use of the information contained in this presentation is expressly excluded. Under no circumstances shall Swiss Re or its Group companies be liable for any financial and/or consequential loss relating to this presentation. 32

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